Titled "Investment Dilemma: Celsius vs. Coca-Cola: Which Top Stock to Choose?"
Celsius (CELH 0.93%) and Coca-Cola (KO 0.05%) might share the beverage industry, but they cater to distinct investor demographics. Celsius, with its rapid growth and healthy energy drinks, attracts forward-thinking investors, while Coca-Cola, boasting a robust portfolio of popular beverages, appeals to patient investors seeking stable, long-term growth.
However, an unprecedented 12-month rollercoaster saw a 40% plummet in Celsius' stock price, contrasted to a 6% rise in Coca-Cola's. Let's delve into why the former's fizzled out and if it may resurface as a market leader versus its industry giant competitor in the following years.
What caused Celsius' stock crash?
Celsius sells sugar-free energy drinks made from natural components like green tea, ginger, and taurine. It also promotes its drinks as "thermogenic," meaning they help individuals burn more calories during workouts. This strategy resonated with younger audience segments, leading to considerable market interest.
The symbiosis between Celsius and PepsiCo (PEP) deepened when the latter invested $550 million in the energy drink manufacturer and became its U.S. distributor in 2022. PepsiCo then expanded that distribution agreement to Canada, while Celsius collaborated with Suntory to distribute its beverages in the U.K. and Ireland.
Celsius saw revenue surge past the double-digit mark in 2021, 2022, and 2023. However, the first nine months of 2024 saw a meager 5% year-over-year growth as it navigated the ramp-up phase of its distribution agreement with PepsiCo and experienced a decline in its domestic market share.
Analysts expect Celsius' revenue to grow by 4% in 2024 and expand at a compound annual growth rate (CAGR) of 11% from 2023 to 2026. They also foresee its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) growing at a 11% CAGR during these three years. While these projections may seem stable, they likely fall short of investor expectations armed with memories of Celsius' explosive growth in previous years.
To sustain momentum, Celsius turns to international expansion. However, its revenue still accounts for 95% of its total income in North America, leaving room for growth in new territories. It also faces fierce competition from industry leaders Red Bull and Monster Beverage, both backed by Coca-Cola and owning smaller energy drink brands like Bang.
Celsius' current enterprise value is $6.7 billion, making it reasonably valued at 19 times its next year's adjusted EBITDA. However, a higher valuation may elude Celsius unless its domestic growth accelerates once more and overseas expansion proves successful.
Why did Coca-Cola's stock remain steady?
Soda consumption patterns have declined globally, but Coca-Cola has adapted by debuting new brands, acquiring established ones, and introducing sport drinks, juices, bottled water, tea, coffee, and even alcoholic beverages. It revitalized its soda brands with smaller servings, healthier alternatives, and new flavors to great success.
These innovations have sustained Coca-Cola's reputation as an ever-green investment, transcending market volatility. Organic sales surged 16% in 2021 and 2022, before declining somewhat to 12% in 2023 but projected to increase 10% in 2024. These consistent growth projections make Coca-Cola an appealing stock for investors searching for stable, predictable returns.
At $63 a share, Coca-Cola appears reasonably priced, trading at 22 times its annual earnings. As a Dividend King, it has boosted its dividend annually for 62 consecutive years and boasts an attractive forward dividend yield of 3.1%. Its share price currently is 13% below its all-time high set in early September, largely attributed to macroeconomic pressures beyond its control.
From 2023 to 2026, analysts expect Coca-Cola's reported revenue and earnings per share (EPS) to expand at CAGRs of 4% and 9%, respectively. While these growth rates are not overwhelming, they are reasonable and ensure Coca-Cola remains a top stock pick among investors for steady, consistent returns. Furthermore, Coca-Cola's investment in Monster Beverage dates back a decade, offering a more conservative approach to savoring the energy drink segment's growth potential without running the risks associated with high-growth stocks like Celsius.
The superior investment opportunity: Coca-Cola
Celsius holds potential for rebounds, but investors' sentiment will keep the stock on the sidelines if they perceive its high-growth days behind. There is uncertainty regarding its ability to reclaim market share overseas and keep pace with Red Bull, Monster, and other energy drink rivals as the market evolves.
Coca-Cola may post modest gains in bullish markets as investors flock towards high-growth stocks, but it remains a secure long-term option for investors. Ultimately, we predict Coca-Cola will continue to surpass Celsius as a reliable investment choice for the foreseeable future.
In light of Celsius' current struggles with slowing domestic growth and fierce competition, some investors might consider diversifying their portfolios by investing in more stable options, such as putting money into the finance sector or other reliable companies.
Meanwhile, Coca-Cola's steadfast growth and innovative strategies in adapting to changing consumer preferences, as well as its consistent dividend payments, have maintained its allure as a safe and lucrative long-term investment option in the finance world.
